In late June 2015 the Deputy Finance Minister of Greece Nadia Valavani revealed to Greek television that the government and banks had agreed that people would not be allowed to withdraw cash from safe deposit boxes for as long as the capital controls were in place.
Earlier this year, on 1 April 2015, Chase bank in the US advised clients who rent safe deposit boxes from them that there would be some changes in their policies, by giving them this message,
Notice the the following condition: “Contents of box: You agree not to store any cash or coins other than those found to have a collectible value.”
The banks are convincing people to put their wealth into cash, and their cash into banks in the form of deposits. They’re being assisted by many of the world’s governments, which are increasing the level of legislation that controls what individuals are allowed to do with their own wealth.
After this is completed, the bank customers are “sitting ducks’ for confiscations of their cash holdings. These will of course be implemented by the banks, and in order to maximize the amount that will be taken, it will be necessary to force people out of other forms of wealth storage and into bank deposits.
And even in a confiscation situation, banks would be reluctant to raid safe deposit boxes, as they would a) have to force them open, and b) have to deal in some way with the non-monetary contents of the boxes, such as documentation and fine art. To do so would glaringly expose the banks as plunderers (assuming the theft of deposits had not already achieved that end).
In the future, we can expect to see more steps taken by banks and governments to squeeze people out of other forms of wealth storage like precious metal, fine art, jewelry, etc. and to deposit the wealth as cash in the banks.
The EU, US, Canada, and several other jurisdictions have passed bail-in legislation the last few years, opening the possibility for confiscating the cash deposits of bank customers, if they deem this necessary.
Believe it or not, you just wake up one morning, and your cash deposits have been raided.
High net worth individuals (“HNWIs“) around the world have traditionally regarded Switzerland, London and New York as the main global wealth management hubs. However, over the last 5 years, Singapore is increasingly regarded by such HNWIs as a serious alternative to these traditional centres.
In 2011, assets under management by Singapore-based managers have reached 1 trillion US dollars. This article briefly highlights the key factors making Singapore a rising jurisdiction amongst HNWIs for the setting up of trusts for their wealth management purposes.
Robust Regulatory Regime: Singapore trust law is based substantially upon English trust principles. The principal statutes governing trusts that are most relevant to the private banking and wealth management industry are the Trust Companies Act1 and the Trustees Act2.
The Monetary Authority of Singapore (“MAS”) is the regulator of trust companies under the TCA, and supervises the complementary activities of trust services, private banking and wealth management in Singapore. The TCA imposes mandatory licensing for all corporations that carry on or hold themselves out as carrying on any “trust business”3 in Singapore. The licensed trust company is required to appoint at least two resident managers with certain minimum credentials and who must be approved by the MAS after a “fit and proper” test to ensure their suitability for the role.
Well Defined Legal Framework for Trusts: The Trustees Act was amended to facilitate and promote wealth management in Singapore through the use of trusts and trustee services. This is part of the Singapore government’s broader aim to enhance Singapore’s position as a leading financial and wealth management centre. Salient provisions of the Trustees Act include:
(a) Reservation of power permitted: Section 90(5) of the Trustees Act expressly provides that no trust or settlement of property on trust shall be invalid by reason only that the settlor reserves certain powers to himself. The powers concerned are those of investment or asset management.
(b) Promotion of Singapore trusts to foreigners: Under the Trustees Act, a person who is a non-Singapore citizen nor non-Singapore domicile is excluded from forced inheritance and succession rules, provided the trust is governed under Singapore law and the trustees must be resident in Singapore. This would allay fears by foreigners about the enforceability of such trusts in Singapore due to forced heirship rules in their home jurisdictions.
(c) Rules against perpetuities addressed: Under Section 27(2)(b) of the Trustees Act, the validity of a trust extends to 100 years unless a shorter period is specified in the trust, in order to address the rule against perpetuities for trusts.
Confidentiality: Singapore has enacted comprehensive secrecy and confidentiality provisions to the Banking Act, Chapter 19 of Singapore (“Banking Act”)4and the Trust Companies Act5 to offer protection to the personal information of banking clients and settlors and beneficiaries of trusts. That said, these secrecy laws are subject to Singapore’s commitment to assist the international community in combating against money laundering, terrorism financing and tax evasion.
Friendly Tax Environment: Singapore has a territorial tax system (only Singapore-sourced income is subject to Singapore income tax) and only taxes foreign-sourced income upon its remittance (or deemed remittance) into Singapore. Capital gains are not subject to tax in Singapore and estate duty was abolished in 2008. Singapore’s highest personal income tax rate is 20% whereas its corporate tax rate is flat at 17%. In addition, Singapore has an extensive network of double taxation agreements with over 70 jurisdictions. Qualifying Foreign Trusts (“QFTs”), which are trusts created in writing where the settlor and beneficiaries are neither citizens nor residents of Singapore or are foreign companies, enjoy attractive tax exemptions. To enjoy the tax exemption, the QFT must be administered by a Singapore licensed trust company.
Open Economy and Sound Economic Policies: Singapore’s greatest competitive advantage is the openness of its economy. It has been regularly rated as one of the world’s freest economy, and easiest jurisdiction to carry on business by the World Bank. There is no exchange control, and the exchange rate of the Singapore dollar is managed by MAS, against a basket of currencies of its main trading partners, with the objective of keeping inflation low and maintaining the purchasing power of the Singapore dollar. Global financial institutions (including private bankers) and fund managers are attracted to Singapore due to its competitive tax incentives for the financial and wealth management industry.
The wealth management industry in Singapore continues to be in an exciting phase of growth, notwithstanding current global economic uncertainties. Singapore has set its sights on attracting the world’s wealthiest to its shores. With its open economy, well-defined legal and regulatory framework, and tax neutrality, Singapore is well positioned to be the premier wealth management hub in Asia, acting as the gateway for the world to tap Asian investments and to the world for Asian investors.
3 “Trust business” is defined widely to include acting as trustee for an express trust, administering an express trust, creating an express trust, and arranging for any person to act as a trustee for an express trust.
4 Under Section 47 of the Banking Act, a blanket prohibition exists against disclosure of “customer information” by a bank (or any of its officers) to any other person except as expressly provided in the Banking Act.
5 Similar provision prohibits disclosure of information regarding a “protected party” (which is defined as, in relation to a trust company, a trust for which the trust company provides trust business services and includes the settlor and beneficiary under the trust) by a licensed trust company (or any of its officers) to any other person, except as expressly provided in the TCA.
The Isle of Man already shares information automatically on personal savings income with the UK and other European Union countries, having been the first non-EU jurisdiction to make a public commitment to this under the EU Savings Directive in June 2009. The Island was also the first to commit, in December last year, to the FATCA-style agreement with the UK extending the scope of automatic disclosure to include, for example, companies and trusts.
The Chief Minister said: “In signing this historic agreement with the United Kingdom we are underlining the message to our neighbors and the wider world that our Island is a responsible center for top quality international business.
“The Isle of Man was the first to strike this agreement with the UK and we are now the first to sign, demonstrating the clear commitment of both countries to the development of a new global standard in automatic exchange.”
Mr Bell added: “Today’s signing is a significant step towards that global standard and further proof that the tax haven moniker in relation to the Isle of Man is well and truly dead, as David Cameron recognized recently in the House of Commons.”
He went on: “The Isle of Man is a forward looking country with a diverse, dynamic economy and a track record of leading the way in the field of international tax co-operation.”
“We have a long-established policy of complying with global standards, and we saw some time ago that enhanced automatic exchange of information on the FATCA model was becoming the new global standard in tax transparency.”
In his speech at the recent Hong Kong Trustees’ Association Conference 2013, the Secretary for Financial Services and the Treasury, Professor K C Chan, confirmed that the Government is keen to promote Hong Kong as a global center for trust services.
Chan called the trust industry “an indispensable pillar that cements our standing as a premier international asset management center.” It offers a diverse range of services and products, including individual wealth and estate planning, as well as corporate trust services, such as trust administration and acting as a custodian. In addition, financial structures and products have been developed that utilize trusts, such as pension funds, real estate investment trusts and hedge funds.
Hong Kong Skyline courtesy of Wiki Commons user Robster1983.
He cited the many advantages that have set Hong Kong apart as a premier trust administration center. In particular, its proximity to the Mainland means the industry can offer its services to ultra-high-net-worth Chinese individuals who are seeking ways to manage their assets, as well as looking to preserve wealth and family businesses for passing on to future generations.
Chan noted that it is the Government’s goal to develop Hong Kong “as the most competitive and dynamic wealth management business center in Asia,” and that, with the setting up of the Private Wealth Management Association in September this year, “it is of vital importance that our regulations are up to date in order to take on new opportunities.”
The Government launched a trust law reform exercise in 2008, which sought to modernize the Trustee Ordinance and the Perpetuities and Accumulations Ordinance, the two main pieces of legislation in Hong Kong’s trust law regime. The exercise was brought to completion with the passage of the Trust Law (Amendment) Ordinance 2013 in July 2013.
The Amendment Ordinance, which, he said, “will put Hong Kong’s trust law on par with those of other major comparable common law jurisdictions,” will come into effect on December 1 this year. Amongst other benefits, it will enhance trustees’ default powers and introduce a host of measures that can better protect beneficiaries.
In the Government’s opinion, it should itself attract trusts to be set up in Hong Kong. In particular, through the abolition of the Rule against Perpetuities, settlors will be able to set up perpetual trusts in Hong Kong (which is still not possible in most major common law jurisdictions), and, through the introduction of the anti-forced heirship rule, settlors will not need to worry that the assets in the trusts would be clawed back by their heirs against their wishes in the future.
The latest amendment to Jersey’s trust legislation came into force on 2013, October 25, strengthening the territory’s legislative framework and providing greater clarity for the courts, practitioners and those who work with or benefit through Jersey trusts.
The effect of Trusts (Amendment No. 6) (Jersey) Law 2013 is to confirm the Royal Court’s ability to provide discretionary relief in a number of trust scenarios, e.g. where a settlor has made an error in settling assets into trust, or where a trustee has erred in exercising a power, perhaps failing to take into account matters which should have been considered, or acting on incorrect professional advice.
Geoff Cook, CEO, Jersey Finance, commented: “Since its enactment in 1984, the Trusts (Jersey) Law has proved to be a highly effective and hugely influential piece of legislation. This latest amendment, only the sixth in nearly 30 years, provides welcome clarity for the Royal Court and for the many settlors, trustees and beneficiaries, all over the world, who enjoy the benefits of having Jersey law as the governing law of their trusts.
St. Brelades Bay, Jersey, image courtesy of Julia Raco, Wiki Commons
The ability for the Royal Court to give discretionary relief when a beneficiary finds itself materially prejudiced by a trustee’s decision – made, perhaps, in good faith but unfortunately founded upon erroneous advice – provides a welcome alternative to the uncertainties and costs which surround ‘classic negligence litigation’.
“With an estimated GBP 400bn (USD 647bn) of trust assets under administration in Jersey, this amendment can only serve to further bolster Jersey’s already highly regarded international private wealth offering.”